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Allstate (ALL) Expects to Incur Catastrophe Loss for April

Zacks Equity Research

The Allstate Corporation ALL expects to incur $290 million pre-tax ($229 million after tax) catastrophe loss for April 2019. The same can be attributed to seven weather-related events at an estimated cost of $259 million, pre-tax. Rest of the loss pertains to unfavorable reserve re-estimates of prior-reported catastrophe loss.

Being a relatively large property insurance business, Allstate is significantly exposed to catastrophic events. Natural calamity-oriented losses for the past many years have weighed on the company’s claims and benefits plus expenses and cash flow, thereby draining its underwriting profitability.

In 2016 and 2017, cat loss increased 51% and 26%, respectively, year over year. The company, however, further incurred catastrophe loss of $2.6 billion in 2018 which was down 11.7% year over year.

Other companies in the property and casualty space such as W.R. Berkley Corp. WRB, Chubb Ltd. CB and Everest Re Group, Ltd. RE also remain exposed to catastrophe losses.

Thus, the company is focused on reducing losses through its catastrophe-management strategy and reinsurance programs along with limiting exposure to riskier geographic markets via premium hikes. This, in turn, might cause a decline in the number of policies in force. However, we cannot rule out the possibility of massive losses the company might face due to cat events and inclement weather incidents.

Despite the cat loss, our confidence in the company’s ability to deliver impressive result remains intact. Increasing premiums in property and casualty business, an improving auto business, growing net investment income, a low tax rate and a strong balance sheet act as key catalysts for earnings growth.

Year to date, shares of the company have gained 16%, wider than the industry’s growth of 2.7%.

 

Allstate carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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